Tax revolt brewing

There may not be a tax revolt in South Africa, but it’s clear there is growing non-compliance.

The latest Budget with its 0.5 percentage point increase in VAT (and a similar increase planned for 2026), and no inflationary adjustments to tax brackets, has stirred debate about a possible tax revolt. South Africans are all taxed out, as pointed out by Investec chief economist Annabel Bishop.

We would argue that SA Revenue Services (Sars) is already tacitly admitting to a revolt of sorts: the fact that it is chasing R800 billion in uncollected tax debts, overdue returns, and "tax inventory" suggests that some form of revolt is underway.

Sars received an additional R4 billion in the latest Budget to help collect on this. As many have pointed out, the one government department that operates with supreme efficiency is entirely extractive in its mission and outcome. How is it that Sars can rightfully lay claim to being the most efficient unit, and do we really want a more efficient tax collector in a country where per capita GDP and economic growth is stagnant for a decade? How about showing some serious concern about unemployment and flaccid economic growth? Perhaps some departmental cuts are now in order.

Nevertheless, with South Africa’s tax base shrinking and GDP flatlining for the last decade, this R800 billion tax shortfall (per Sars’ estimates) represents a massive compliance gap—about 12% of GDP—consistent with warnings of evasion outpacing enforcement.

Another sign of revolt is the estimated R24 billion a year lost to unpaid excise on illegal cigarettes. Sorry, that’s an own goal by government, which banned cigarette sales during Covid and forced smokers to get their fix on the black market. That black market has remained in force since then. Smokers switched brands to cheaper illegal imports and decided to stick with the cheaper alternatives once the ban was lifted.

Then there’s the informal economy, which accounts for 30% of GDP which is suspected of massive VAT and income tax evasion – as much as R100 million a day by some estimates. This no doubt explains why the government is forcing the 150,000 spaza shops across the country to register with municipalities, supposedly for health reasons – but more likely to rope them into the tax net. We suspect this effort will fail.

Further evidence of non-compliance is the R91 billion owed by municipalities to Eskom and the R24 billion owed to water service providers. Stats SA reported that R347.6 billion was owed by consumers to municipalities.

The culture of non-compliance and tax evasion is well entrenched and was, to a large extent, encouraged by the government as a form of disobedience in the early 1990s during the apartheid struggle. It’s not easy to shake off a campaign of non-compliance once it has taken root.

So, here we are – call it a revolt, or call it non-compliance, but one thing’s for sure – any attempt to raise further taxes (considering just 224,000 taxpayers account for 34% of personal income tax in a country of 64 million people) will likely result in far more energetic attempts to evade tax and perhaps prompt the highest earners to move to lower tax jurisdictions.